What two factors that affect the cost of capital are generally beyond
the firm’s control?
What are three factors under the firm’s control that can affect its cost
of capital?
Suppose interest rates in the economy increase. How would such a
change affect each component of the WACC?
Why is the cost of capital sometimes referred to as a “hurdle rate”?
How should firms evaluate projects with different risks?
Should divisions within the same firm all use the firm’s composite
WACC when considering capital budgeting projects? Explain
Identify some problem areas in cost of capital analysis. Do these
problems invalidate the cost of capital procedures discussed in the
chapter?
